Instilling Taxpayer Honesty

By: Cielito F. Habito, PhD

All of us have evaded taxes. Some do it big time, others in ways that would hardly make a dent, at least individually. Some do it directly and knowingly, while most of us probably do it more indirectly and perhaps unknowingly.

I have always told my economics students that one does not have the moral authority to fault the government for not collecting the proper amount of taxes if he/she fails to ask for an official receipt when patronizing a formal business establishment. That makes one a likely accomplice to tax evasion, because it permits the business owner not to report the transaction to the tax authorities, and escape any tax liabilities that go with it. It could mean just a few pesos of taxes for an individual transaction, but with millions of such undocumented sales transactions in a day, it all adds up to tens, possibly hundreds, of millions of pesos in revenues lost by the government every day.

That’s just the small change. Think about the income taxes and other taxes deliberately evaded by large taxpayers through misdeclaration of income or value of transactions, or use of fake tax stamps, as in the well-publicized case of Mighty cigarettes. In 2013, the Department of Finance estimated that about P400 billion was being lost annually to tax evasion alone. That’s around 4 percent of the country’s gross domestic product, and could buy us 400,000 new classrooms, or 27,000 kilometers of paved roads — enough to traverse the entire length of the country 13 times!